commission cut

7 Consequences of Marriott’s Commission Cut

We are two weeks into Marriott's announcement of commission reduction for third party planning companies from 10 percent to 7 percent. Many were caught off guard by the reduction; others were not surprised, assuming this would be coming shortly after the acquisition of Starwood. There continues to be a lot of chatter about the move, which has created uncertainty for strategic meetings management program funding and uncertainly for agencies to achieve revenue targets for 2018; as well as concern about the fairness of excluding the four largest booking agencies from the commission reduction for an undisclosed amount of time. 

I wanted to add to the conversation by sharing seven corollaries I see as a result of the recent changes:

1. We may see short-term rate adjustments by some hotel companies to increase commissions in order to shift market share and ensure that corporations and agencies are able to meet budget targets.

2. Look for an unintended consequence of the commission reduction: corporations moving business to one of the four legacy agencies that continue to benefit from the standard 10 percent commission at Marriott.

3. Corporations that use a commission-share model will have to make some tough choices on how to allocate funds, shifting some money from direct event expenditures to support agency management fees.

4. Expect higher operational costs, as revenue targets have already been set by meeting management agencies, who will not be able to absorb lower fees as a result of lower commissions.

5. SMM leaders will develop strategies ASAP to address new funding models with reduced/eliminated commissions.

6. We’ll see the redoubling of efforts by SMM leaders to prove the value of their previously "self-funded" programs. I am concerned that in many organizations, "low cost or no cost" translates to senior leadership as "low value or no value," making it hard to sell the business case to get additional funding.

7. Good news! Those who have always been able to sell the value of their SMM through centralized corporate funding or a pay-as-you-go model are in great shape. The change in commission doesn't affect them, as commissions were never part of the equation.

My final thought: The commission paradigm will shift and eventually become a very dynamic model. The traditional 10 percent rate across the board will be a thing of the past. I suspect in some very constricted markets, there may be little to no commission offered. Conversely, I can envision need dates that may garner commissions above 10 percent, and others remaining in the 7 percent range. I see this as the basic factors of supply and demand in play for the future of group hotel commissions.

 

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